Last week’s Federal budget confirmed that the long awaited increase to the superannuation guarantee will take place on 1 July 2021. From that date, compulsory employer superannuation contributions will increase to 10%. The last increase to the superannuation guarantee was on 1 July 2014 when the guarantee was increased from 9.25% to 9.5%.
Our tax team has noticed an increase in the number of superannuation guarantee audits since the amnesty ended on 7 September 2020. We therefore recommend that employers check that their payroll systems are updated to ensure that the correct amount of superannuation is applied. Failure to do so may result in a superannuation guarantee shortfall, which could lead to a range of penalties under the ATO’s strict compliance regime for unpaid superannuation, including:
- director penalties whereby a director is personally liable to pay a penalty equivalent to the shortfall;
- administrative fees per employee per quarter;
- statutory interest of 10% which cannot be remitted; and
- administrative penalties of between 75% – 200% of the shortfall for false and misleading statements, failure to lodge a superannuation guarantee change statement by the due date and failure to comply with the ATO’s directions during an audit.
Will this cost me more?
Whether the cost of the increase in the superannuation guarantee will be worn by an employer or employee depends on the employee’s employment agreement. Specifically:
- whether the employee remuneration is inclusive or exclusive of superannuation; and
- for remuneration clauses that are drafted as providing ‘fixed remuneration’, whether the contract has the necessary provisions to permit the employer to reduce an employee’s base salary to ‘absorb’ an increase in the superannuation contribution, with no overall increase in the employee’s fixed remuneration.
If the employee’s contract has an appropriately drafted fixed remuneration clause that provides for an increase in the superannuation contribution to be absorbed into the employee’s base salary, then the increase in superannuation will not increase the employer’s overall remuneration cost (subject of course to salary reviews and managing employees receiving a lower base salary).
Removal of $450 per month income threshold
The Government has proposed removing the current $450 per month income threshold for employees to be paid the superannuation guarantee be removed. It is anticipated that this change will commence from 1 July 2022. Employers with employees who only work a few shifts a month must ensure that their payroll systems are up to date to ensure that they avoid a shortfall.
Common traps for contractors
Finally, we close out this update with some observations from our Tax & Structuring team which has dealt with a number of superannuation audits for businesses over the past few months. The two most common issues centre around entitlement to superannuation by “independent contractors” and late payment of superannuation which results in a superannuation guarantee charge.
Often, businesses engage independent contractors on the assumption that superannuation is not payable, and agree to commercial terms on that basis. However, if this is not assessed properly at the outset, an independent contractor may receive a windfall gain. This typically arises from the business agreeing to a higher pay to the independent contractor on the basis that no superannuation is payable, and then subsequently being forced to pay superannuation to the independent contractor once the issue arises or following an audit by the ATO. If the contract does not have a carefully drafted claw-back clause in place, the business is unable to recover the windfall gain from the independent contractor.
If you would like us to review your fixed remuneration clauses or contractor agreements, or if you have any queries about your superannuation obligations, please do not hesitate to contact our Tax & Structuring or Workplace Relations & Safety teams.